Draft legislation implementing the new Securities Transfer Tax (STT) was published on 13 July. STT is a new single, digital, self-assessed tax on the transfer of shares and certain other securities, intended to replace stamp duty and SDRT. 

The objective of the reform, in HMRC’s own words, is to:

“…modernise and simplify the [stamp taxes on shares] framework by replacing two interdependent taxes with a single, clear, self-assessed and digital first tax, improving certainty, efficiency and ease of use for taxpayers and financial market participants. 

This supports the government’s wider objectives of tax simplification and modernisation, as well as facilitating the wider modernisation, innovation and improved liquidity of capital markets.”

The legislation remains in draft form and may be amended before it comes into force. However, it undoubtedly gives us a strong flavour of what is in store. 

As an introduction, we’ve outlined below five things that STT does not change, and five things that STT does change. 

Five things that are the same

1. The headline rates of tax: As expected, the main charge to STT has been modelled after the principal SDRT charge: it arises where a person agrees to transfer chargeable securities to another person for consideration in money or money’s worth. The main rate of tax stays at 0.5% of the consideration (or, in circumstances where the market value rule applies (see below), the deemed consideration) for the transfer. In addition, there continues to be a higher-rate charge for transfers into a clearance service or depositary receipt arrangement, which stays at 1.5%.
2. Exemptions: The core menu of exemptions and reliefs has been carried over, including for example, group relief, intermediaries relief, the recognised growth market exemption,  and the relatively new UK listings relief. The form of these exemptions is broadly similar, but HMRC have modernised some of the language, which will need to be scrutinised to ensure there are no unexpected differences compared with the current rules.
3. The market value rule: Broadly, where listed securities are transferred to a connected company, or where the consideration for a transfer to a connected company includes the issue of shares, the transfer will continue to be deemed to have taken place at market value where the value of the consideration is lower.   
4. Transfer of bare legal title: Transfers which do not involve a change in the beneficial ownership will not be subject to the main STT charge. This was always an “understood” aspect of the stamp duty and SDRT framework, but becomes more explicit in the STT legislation.
5. Registration: Lastly, as is the case now, so long as the chargeable security being transferred is a share in a UK-incorporated company, that transfer generally cannot be registered in the company’s register of members until any resulting STT has been paid (or confirmed as exempt). 

Five things that are new

1. One at the cost of two: Stamp duty and SDRT are abolished and merged into a single tax charged on the agreement to transfer chargeable securities. The charge itself doesn’t feel entirely new – SDRT already works in a similar way – but it does mean that a physical instrument of transfer is no longer the subject of tax. In practice, what this means is that much of the time that sometimes had to be spent by advisers on making sure that stamp duty and SDRT didn’t both “bite” on the same transfer can now be freed up.  
2. Chargeable securities: The definition of chargeable securities has been the subject of a very welcome streamlining. At a high level, the new rules focus on shares and “equity-like” debt interests in UK-incorporated companies, units in non-excluded unit trust schemes and certain related interests, options and subscription rights. The removal of shares in non-UK companies entirely from the scope of STT is a significant simplification, removing the need for advisers to ask about share register locations, or worry about executing non-UK share transfers in the UK.  The removal of the (fairly hidden) charge to stamp duty on partnerships is also welcome, albeit subject to a new TAAR.
3. Timing rules for when the charge crystallises: As a starting point, the main STT charge arises when the relevant agreement is made or, if it is conditional, when the conditions are satisfied. However, for non-electronic transactions (transfers outside of CREST), the charging point is deferred until the transfer is “substantially completed”, which, broadly speaking, occurs when: all or substantially all of the consideration is paid; the transferee exercises voting rights attached to the transferred securities (or another person exercises those rights on the transferee’s behalf); the transferee receives a dividend or another financial benefit attached to the transferred securities; or, the transferee sells, or agrees to sell, the transferred securities or an interest in them. The higher-rate charge, by contrast, arises when the transferred securities are received by the clearance service provider or the depositary receipt issuer.   
4. Contingent, uncertain and unascertainable consideration: Stamp duty and SDRT dealt with contingent, uncertain and unascertainable consideration differently. STT gives us a single playbook. Broadly speaking, if an element of consideration cannot be determined when the charge arises, the initial STT charge will be based on a reasonable estimate of that element. For most non-CREST transactions, the tax will be due within 30 days after the charge crystallises. Once the exact amount of the uncertain element becomes clear, the tax is redetermined, which may lead to a repayment or an additional payment. There is also a mechanism for a party to apply to defer payment of tax attributable to the uncertain element of consideration in certain cases. Deferral can be claimed in stages: each stage can last up to four years, with a maximum permitted deferral time of 12 years after the charge first crystallised.
5. Closing the gap – the other one: At present, there may be a considerable lag between the time an instrument of transfer (such as a stock transfer form) is executed and the time it can actually be used to update the company’s register of members. That delay comes from the fact that stamping is currently a manual process undertaken by HMRC. A core part of the rationale for STT is to eliminate this delay. STT returns will be filed through an online portal, with an acknowledgement generated immediately. That acknowledgement can then be used to update the relevant share register.

The main question now is, what next? A consultation on the draft legislation is running until 7 September. At the moment, however, HMRC have not committed to an exact date for bringing the STT into force, beyond that it will be in 2027. A further update on timing is expected at the Autumn Budget, so we’ll have to wait and see until then.

Please get in touch with either of us or another member of the Slaughter and May team if you would like to discuss the STT further – our inboxes are always open.